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Closing Comments

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Closing Comments

 

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Corn had another positive trading day closing towards the top of its recent range at 3.61 1/4. EIA ethanol production came out today, up +15k barrels to nearly 1.04 mbbls per day; this increase was especially encouraging since it still led to an overall draw down of stocks by 5k barrels to 18.68 million barrels. The U.S. Farm Bureau put out a statement fully supporting PEOTUS Trump’s pick to lead the EPA, Scott Pruitt, as the previous administration overstepped its bounds with regulations that had a negative impact on farming. In other news, a potential drier outlook for Brazil over the coming weeks could provide resistance to corn, as this dryness should allow safrinha corn in Brazil to go in 2-3 weeks early. This timing should allow maximum yield potential for this shorter season double crop corn, offsetting potential losses from excessive rain in Argentina.

 

Soybeans backed off today by 2 ¾ cents after yesterday’s strength, as the market continues to wrestle with the prospects of an excellent Brazilian crop and a shrinking Argentine one. A crop scout in Argentina, Michael Cordonnier, has expressed concern that not all soybean acres will be planted this year due to the rains and flooding. More than half is in the northern part of the country. He feels in a worst case scenario, up to 5% of the soybean crop may not be planted. However, conditions outside of the flood zone have been rated good to excellent and are expecting a great yield. In addition, Brazilian production could easily offset the issues of their southern neighbor. Early yields out of Mato Grosso have been better than expected, while northeastern Brazil should remain dry and hot in the near term. Dalian soybean and soymeal futures traded higher today, while May palm oil gave up -42 yuan. Keep a watchful eye on the Dollar as continued weakness could be an important supportive factor to exports over the coming months.

 

Wheat extended gains today in another strong session finishing up nearly 8 cents in both Chicago and KC Wheat, while Minneapolis lagged slightly up 5 ¾ cents. With the potential for the lowest amount of winter wheat planted in the last 50 years, wheat prices seem to finally be reacting to a potential domestic shortage of acres in 2017. With large fund shorts, strength out of this market could surprise, especially considering the still burdensome over 50% stocks to use ratio that we have domestically. Several countries are in for wheat tenders including Jordan, Japan, Morocco and Ethiopia. The U.S. became more competitive towards the end of the year as a global exporter, and needs to be able to capture more of this market in 2017. Ukrainian farmers planted 20 million acres of wheat compared to 19.3 million last year, but crops are at risk over the next few days, with temps reaching -20C with insufficient snow cover in some areas. 

 

Cattle gave up some of yesterday’s gains after a back and forth session closed near its lows, down .60 in the February contract. The futures market is overbought, but beef prices are still strong. Despite this intermediate strength, the market still feels ripe for a correction with good weather and large supply starting to stifle momentum at these prices. In an interesting note, heifer placements continue to increase month of month in the nation’s feedlots; historically, this lack of retention usually signals the end of a cycle of supply growth and a slow balancing between supply and demand normally ensues.

 

Hogs continued to regain from Tuesday’s dramatic losses in today’s small range day that closed .27 higher in the February contract. Keep an eye on Mexico buying, as a sharp decline in hams could be on the horizon if Mexican demand changes. Near-term supply and demand fundamentals would seem to indicate futures could be prone to a sharp downside correction. That being said, a run to $70 has not been negated yet, but fundamental and technical support above that mark in February seems unlikely as of today.

 

With the New Year’s Holiday, all regular USDA weekly reports will be delayed one day from their customary release this week.

Closing Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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